Millions of Americans continue to grapple with IRS delays that are preventing them from getting their tax refunds in a timely manner, according to a new report from the National Taxpayer Advocate, an independent watchdog that’s part of the IRS.
The report, published annually to highlight the IRS’ most glaring problems, comes after the agency was given billions in new funding through the Inflation Reduction Act to improve its technology and go after wealthy tax cheats. Yet for many taxpayers, dealing with the IRS involves “delays, frustration and unnecessary costs,” the taxpayer advocate, Erin M. Collins, wrote in the report.
Problems highlighted in the report echo issues that bedeviled millions of taxpayers during the pandemic, when the IRS shuttered its offices, causing many returns to get caught in a bottleneck, delaying refunds. While the worst of those issues have since been resolved, Collins noted, the IRS continues to struggle in some areas, such as processing paper returns and dealing with taxpayers who have been victims of identity theft, which can lead to lengthy refund delays.
“Notwithstanding the improvements I have described, taxpayers continue to face challenges in their dealings with the IRS,” she wrote.
The nearly $80 billion in funding from the IRA has helped the tax agency hire more workers, some of whom have bulked up its customer service support. But almost $6 out of every $10 of the new funding is directed toward enforcement, or boosting audits of wealthy tax cheats and businesses that skirt tax laws, the report noted.
“I have previously criticized this extreme imbalance in funding priorities,” Collins wrote in the report, noting that she believes more money should be directed toward taxpayer services, an IRS unit that helps taxpayers with questions, problems and other dilemmas that arise.
The IRS has already made improvements in some of the areas underscored by Collins, IRS Commissioner Danny Werfel said in a statement to CBS MoneyWatch. The NTA report also acknowledges the progress the IRS has made, which Werfel said demonstrates “what a well-funded IRS can do.”
“It’s important to continue that momentum because we recognize the agency’s work isn’t done —not by a long shot,” he said. “It’s vital that the IRS continue this progress to better serve taxpayers and the nation.”
Here’s who is facing tax refund delays
Collins reiterated one of her earlier criticisms of the IRS: That paper returns are the agency’s “kryptonite.” Unfortunately, she said in her most recent return, the IRS continues to receive more than 10 million income tax returns on paper each year — while it also gets another 75 million paper forms from taxpayers.
While the IRS has made progress in processing paper returns, it’s still not up to snuff, she noted. Processing paper returns can still take months for the IRS to complete, she added.
And many people who e-file also face delays if their 1040s are rejected, an issue that impacted 18 million taxpayers in fiscal year 2024, or 12% percent of returns, her report noted. These rejections can happen for issues like a PIN that doesn’t match the prior year’s return, or an adjusted gross income number that doesn’t match up from the prior year.
“[M]ost rejected returns are valid, requiring taxpayers to jump through additional hoops to resubmit their returns electronically or submit the returns on paper,” she wrote. “Most taxpayers receive refunds, and delays in processing both paper-filed and e-filed returns translate into refund delays.”
People who have been victims of identity theft are another group that often face delays in getting resolution. About half a million taxpayers are still trying to their their issues fixed, although it took the IRS about 22 months on average to resolve the cases and send refunds to the victims, she added.
That can be stressful for taxpayers waiting for their refunds, but it also creates an additional cost to the federal government, which must pay interest on overpayments it doesn’t refund on a timely basis, the report pointed out.
Some businesses, meanwhile, are facing delays due to the Employee Retention Credit, a tax benefit created in the pandemic to help businesses stay afloat. But the IRS has flagged the ERC as vulnerable to fraud, leading to delays in processing returns.
The IRS is “still sitting on a backlog of about 1.2 million claims as of October 26, 2024” for returns that claimed the Employee Retention Credit, the report said. “Although its aim was to minimize the payment of ineligible claims, there have been lengthy delays in the payment of eligible claims submitted by employers that, in some cases, are depending on ERC refunds to remain in business.”
When does tax filing open in 2025?
Tax filing typically begins at the end of January, although the IRS hasn’t yet announced when it will start accepting all returns.
Some taxpayers can start filing on Jan. 10, however, the IRS said on Tuesday. That’s because its Free File service will start accepting returns on Friday, it noted.
The IRS Free File program, which is offered through tax software companies, is available to taxpayers with adjusted gross income of $84,000 or less in 2024.
It’s a different service than the IRS’ relatively new Direct File service, which will be available in more than 20 states this tax season, from Alaska to Wyoming.
